Correlation Between Codorus Valley and Merchants Bancorp

Can any of the company-specific risk be diversified away by investing in both Codorus Valley and Merchants Bancorp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Codorus Valley and Merchants Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Codorus Valley Bancorp and Merchants Bancorp, you can compare the effects of market volatilities on Codorus Valley and Merchants Bancorp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Codorus Valley with a short position of Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Codorus Valley and Merchants Bancorp.

Diversification Opportunities for Codorus Valley and Merchants Bancorp

-0.39

Correlation Coefficient

Codorus Valley  Merchants Bancorp

Very good diversification

The 3 months correlation between Codorus and Merchants is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Codorus Valley Bancorp and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Codorus Valley is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Codorus Valley Bancorp are associated (or correlated) with Merchants Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Bancorp has no effect on the direction of Codorus Valley i.e., Codorus Valley and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Codorus Valley and Merchants Bancorp

Given the investment horizon of 90 days Codorus Valley is expected to generate 3.81 times less return on investment than Merchants Bancorp. But when comparing it to its historical volatility, Codorus Valley Bancorp is 1.37 times less risky than Merchants Bancorp. It trades about 0.02 of its potential returns per unit of risk. Merchants Bancorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,365  in Merchants Bancorp on September 21, 2024 and sell it today you would earn a total of  1,229  from holding Merchants Bancorp or generate 51.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.76%
Values	Daily Returns

Codorus Valley Bancorp  vs.  Merchants Bancorp

Codorus Valley Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Codorus Valley Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Codorus Valley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merchants Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merchants Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Codorus Valley and Merchants Bancorp

The main advantage of trading using opposite Codorus Valley and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Codorus Valley position performs unexpectedly, Merchants Bancorp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Merchants Bancorp will offset losses from the drop in Merchants Bancorp's long position.

The idea behind Codorus Valley Bancorp and Merchants Bancorp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Managers module to screen money managers from public funds and ETFs managed around the world.